Combating 75% Global Non-Compliance: Lessons From the 2024 Paris FATF VACG Consultation

April 15, 2024

The 2024 FATF VACG (Virtual Assets Contact Group) Private Sector Consultation in Paris brought together global financial regulators and industry leaders in the private sector to discuss the future of cryptocurrency oversight. This annual event is crucial for shaping international standards and practices in combating money laundering and terrorist financing in the rapidly evolving world of virtual assets.

As the global leader in DeFi and smart contract investigations, AnChain.AI was proud to contribute our expertise and experience on the frontlines of crypto regulation and enforcement.
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Key Takeaways:

Regulatory Compliance Lags: 75% of jurisdictions fail to meet FATF compliance recommendations; only one found largely compliant.
Travel Rule Challenges: Major VASPs and exchanges struggle with different standards and globally low adoption rates.
Smart Contract Risks: Most jurisdictions fail to assess vulnerabilities within DeFi smart contracts.
Pig Butchering & Ransomware on the Rise: Increasing prevalence of financial crime worldwide necessitates utilization of AI to cut through the high volume of cases
DeFi Regulation Lags Behind: Over half the advanced jurisdictions require licensing for DeFi as VASPs, yet 40% are still in the process of defining their approach.

The State of Global Crypto Regulations

Travel Rule Challenges

The 2024 FATF VACG conference immediately spotlighted the complexities surrounding Travel Rule implementation and compliance, particularly concerning Virtual Asset Service Providers (VASPs).

Despite progress, the conference brought attention to the current patchwork state of global Travel Rule compliance, with significant challenges in integrating varying standards across jurisdictions, data privacy concerns, and the interoperability of systems.

R15 and R16 Compliance

Further attention was directed to the challenges obstructing global adoption of FATF Recommendations 15 (R15) and 16 (R16).

In particular, it was noted that more than 75% of jurisdictions remain only partially compliant or not compliant at all with these standards, with only a single jurisdiction found to be fully compliant. The matter was further complicated by major VASPs including Coinbase and Binance beginning to implement their own Travel Rule standards, in addition to other private entities developing independent, parallel frameworks.

AML, CFT, and Smart Contract Security

The escalating sophistication of financial crimes, particularly through decentralized finance (DeFi) platforms, was a recurring topic. The vulnerabilities of smart contracts to exploits such as flash loans and tick manipulation were particularly emphasized.

Most jurisdictions were noted to possess no measures or tools capable of identifying these vulnerabilities, and no regulatory tools to enforce security standards.

Financial Crime Trends and Mitigation

Rising trends in financial crime took center stage at the event, particularly focusing on escalating threats like pig butchering scams and ransomware attacks, both of which have been complicated in the DeFi era.

Mitigating Rising Caseloads with AI

To combat these and other sophisticated financial crimes, the conference highlighted the urgent need for enhanced training, expertise, and tools. The AnChain.AI team offered its experience in the successful utilization of AI to cut through the complexity and volume of cases, including:

Automated tracing tools: These tools enable quicker strategic assessments and identification of exchanges in track/trace methodologies, essential for navigating the complex networks used in money laundering and other financial crimes.
Smart contract assessments: Utilizing AI to assess vulnerabilities within smart contracts, dissect smart contract calls, and assist in the construction of transaction graphs that map the flow of illicit funds.

Looking Forward

As the landscape of cryptocurrency regulations continues to evolve, AnChain.AI remains committed to the development of mission-critical AI technology, collaborating with global regulators to address emerging challenges in the space.

Interested in learning more? Stay tuned for the latest updates on our upcoming webinar, where we’ll explore developments in FATF, MICA, and other trending crypto regulations! Or, to start streamlining your compliance right away, request a demo at https://www.anchain.ai/demo

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